The dollar has been taking some big hits especially if you look at a flow weighted index. The table shows the Citibank flow weighted dollar index for the last two and a half years. This series starts before the credit crisis. What is as surprising as the dollar rally are the huge spikes down in the dollar index.
These spike are tied to Fed behavior. The decline in September is associated with AIG and Lehman. The decline in December is the announcement of going to quantitative easing and the lowering of targets, and the recent drop with the announcement of buying Treasuries out the curve. While the market has moved back to higher levels in all three cases, it is interesting to see how the dollar sells off hard on these actions. The flow weighting makes it more likely that this is speculative capital movement as opposed to trade related activity.
The Fed tail risk is high and not helping to calm markets. International investors are not happy with Helicopter Ben when they make big announcements.
These spike are tied to Fed behavior. The decline in September is associated with AIG and Lehman. The decline in December is the announcement of going to quantitative easing and the lowering of targets, and the recent drop with the announcement of buying Treasuries out the curve. While the market has moved back to higher levels in all three cases, it is interesting to see how the dollar sells off hard on these actions. The flow weighting makes it more likely that this is speculative capital movement as opposed to trade related activity.
The Fed tail risk is high and not helping to calm markets. International investors are not happy with Helicopter Ben when they make big announcements.
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